Summary: Rule 96(10) of the CGST Rules, 2017 restricts registered persons from exporting taxable goods on payment of IGST while claiming a refund if they have received supplies benefiting from certain notifications. Key notifications include those allowing supplies against Advance Authorization, Export Promotion Capital Goods Authorization, and exemptions for goods imported by Export Oriented Units (EOUs). The GST department has initiated legal actions, including summons and show-cause notices, for alleged erroneous IGST refunds, imposing penalties and interest under the CGST Act. This stringent interpretation creates challenges for exporters, potentially disrupting business operations and deterring foreign investments. In response, exporters have contested Rule 96(10) in High Courts, resulting in recent rulings, such as the Kerala High Court declaring it “ultra vires” to the IGST Act. Additionally, Circular 233/27/2024-GST provides relaxations for Advance Authorization Holders and 100% EOUs, allowing certain past refunds under specific conditions. Ultimately, if exporters have only availed basic Customs Duty Exemptions and have paid the applicable IGST and Compensation Cess, the restrictions of Rule 96(10) do not apply, enabling them to claim IGST refunds as per the recent circular.
Brief History of Refunds under Rule 96 (10) of CGST Rules, 2017
Rule 96(10) of the CGST Rules, restricting to a “registered person” from exporting the taxable goods on payment of IGST and claiming refund of IGST paid, if the exporter/supplier has received the supplies on which the benefit of following Notifications has been availed.
Notification No. 48/2017-Central Tax dated 18-10-2017 with summarized contents
- Supply of goods by a registered person against Advance Authorization.
- Supply of capital goods by a registered person against Export Promotion Capital Goods Authorization
- Supply of goods by a registered person to Export Oriented Unit
- Supply of gold by a bank or Public Sector Undertaking specified in the notification No. 50/2017-Customs, dated the 30th June, 2017 (as amended) against Advance Authorization.
Notification No. 40/2017-Central Tax (Rate) dated 23-10-2017 with summarized contents
- Rate @ 0.05% on intra-State supply of taxable goods by a registered supplier to a registered recipient for export subject to specified conditions.
Notification No. 41/2017-Integrated Tax (Rate) dated 23-10-2017 with summarized contents
- Integrated Tax rate of 0.1% on inter-State supply of taxable goods by a registered supplier to a registered recipient for export subject to specified conditions.
Notification 78/2017-Customs dated 13-10-2017 with summarized contents
- To exempt goods imported by EOUs from integrated tax and compensation cess
Notification No. 79/2017-Customs dated 13-10-2017 with summarized contents
- Seek to amend various Customs exemption notifications to exempt Integrated Tax/Cess on import of goods under AA/EPCG. Schemes
In view of the above scenario, the GST department has initiated legal actions, issuing summons and show cause notices for alleged erroneous IGST refunds. This includes levying interest not exceeding 24% under Section 50 of the Central Goods and Services Tax Act 2017 and imposing penalties equivalent tax under Section 74 of the Act.
Challenges to file IGST refund towards the export of Goods and Services
- A stringent interpretation or retrospective application of the rule can create uncertainty in business.
- Disrupt the smooth functioning of Exporters and export-oriented businesses.
- Foreign investors and trading partners may perceive such developments as unfavorable, potentially eroding confidence in India’s business environment.
- It could deter foreign investments hampering efforts to expand international trade.
- Accumulation of ITC and increasing a cascading effect.
In response to above, exporters have taken recourse by approaching the respective High Courts, contesting the validity of Rule 96(10) of the CGST Rules. They seek a stay on the ongoing recovery proceedings.
Relaxation to Exporters
1. In the recent case of Sance Laboratories Pvt. Ltd. v. UOI & Ors, the Hon’ble High Court of Kerala in a set of writ petitions and declared Rule 96(10) of the Central Goods and Services Tax Rules 2017 (‘CGST Rules’) as “ultra vires” to Section 16 of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’), and unenforceable due to its manifestly arbitrary nature.
2. The Circular 233/27/2024-GST, dated 10th Sept 2024, issued and through this Circular, relaxation has been provided to Advance Authorization Holders & 100% EOUs against the recovery for past Refunds. However, such relaxation will be subject to the following conditions:
3. Bill of Entry (for inputs) to be Amended u/S 149, Customs Act
4. Payment of IGST & GST Compensation Cess, as applicable to such imports.
5. Payment of interest (from date of import upto present date)
6. Order by Customs Authorities, approving such amendment
Conclusion
In case the exporter or 100% Export Oriented Businesses has only availed the basic Customs Duty Exemption at the time of importation of inputs intended for export goods and has discharged the IGST and Compensation Cess on imports, the restriction of Rule 96(10) of CGST Rules, 2017 does not apply, and the exporters or 100% EOUs are eligible for claiming an IGST refund in line with the circular 233/27/2024-GST, dated 10th Sept 2024.
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